Tag Archives: Budget 2011

Budget III: GST and Special Employment Credit

[FB should do something about the Notes features here. I can’t set up hyperlinks :(]


Anyway, Finance Minister Tarzan, I mean, Tharman Shanmugaratnam has responded to various questions which MPs have posted about the Budget. Despite calls to cut GST to control inflation (at best a temporary measure), he reaffirmed the govt’s position on this issue: that indirect taxation will gradually replace direct taxation. He also emphasized the importance of productivity as a key driver of income growth (like, duh?), and on the topic of social mobility or income inequality, he flashed out many examples to illustrate the govt’s priorities regarding it.


Both the Finance Minister and Workers’ Party MP Low Thia Kiang have valid reasons on GST. It is true GST is a regressive tax, it hurts the poorer than the rich because the former has a larger marginal propensity to consume. He is right in saying the poor (and during the debate, he said ‘middle-class’ too) is disproportionately affected by GST. On the other hand, Tharman has statistics to back himself up – that the lion share of GST comes from the top 40 percentile of households and foreigners (I’m assuming he includes tourists, but I thought they got duty-free shopping i.e. GST rebates?). It makes sense, since the rich consume expensive, big-ticket items which will then send more GST revenue to govt coffers.


Actually ah, most S’poreans don’t pay direct taxes. And it’s good, because then we can choose what to do with our income (I guess most of us spend it…which goes into GST lol). So indirect taxes are one of the ways to fund govt revenue, or who’s gonna pay?


While I agree multi-rated GST for different items, or essential vs. luxury goods, is administratively burdensome, I don’t see why it can’t be reduced AT ALL. Personally, I think stuff like food should be cheap. Yes, the govt might show that food is a small component of total household expenditure, but when prices of food increase, people feel the pinch in the first few months before resigning themselves to it. I can’t think of the right words to phrase it. Maybe I should call it psychologically damaging for basic food like your zi char or char siew rice or whatever to have higher prices. The psychologist Maslow has a pyramid of needs which I think is quite enlightening. People need food to survive, and while S’pore isn’t starving, making food cheap eliminates the anxiety of some households who have to worry about meals.


If I were the Finance Minister, I would abolish the GST on common vegetables and rice. If the supermarket chains or market stalls try to gay siao and do not reduce prices to pre-GST levels, I’d set the dogs on them.


As I mentioned, cutting GST is no solution to inflation. Ensuring that income growth increases more than inflation IS the correct way, as the Budget has done correctly. The GST is a scapegoat for inflation problems 😦


Secondly, Tharman talked about ‘inclusive society’ and ‘opportunities’ etc. Generally I agree with the govt’s direction. Raising productivity will increase income growth, and everyone will be happy. But I’m disappointed that he did not address one particular group’s problems: the trinity of ‘low-income’ (according to Workfare, it’s below $1700), ‘low-skilled’ (hmm, secondary education and below?) and ‘old’ (a little tricky, after late 40s?).


I’ve been having my lunch at the cheapest place one can find in Raffles Place for the past three weeks, and when the cleaners come to clear my plates, I always wonder how much they earn. It’s a tough and dirty job, and I doubt they are paid alot. How much? $600 per month? Furthermore, the cleaners I see are usually white-haired uncles or aunties. Hence they fit into my category of the trinity.


The govt always talk about retraining, job redesigning or raising productivity. But seriously, how much productivity and retraining a cleaner can achieve in a hawker centre? Uniform, checked. Gloves and boots, checked. Best soap, checked. Maybe smile. Checked.


Or not just the cleaner, but a recently retrenched production factory worker in his late forties, low-skilled. He is retraining under the Workforce Skills Qualification (WSQ) to be a security guard. He earns $1600 a month for his family of four. Under the WSQ, he can obtain a license, followed by a supervisor’s certificate, then finally a diploma. If he’s good, he might become a security manager and he can earn more than $2500 a month. Well, does that happen to EVERYONE?


There’s nothing wrong with being a cleaner or security guard or technician or storeman or dunno what. The pay might be low, the conditions might be bad, and there’s little room for improvement. Having a JOB is more important than being unemployed, with nothing (except for the bohemians and ascetics lah). Some people think a minimum wage is the best solution – EVERYONE will have a minimum salary of $1200.


I disagree, because it 1) raises cost for business and eventually for consumers, 2) it doesn’t solve the trinity situation, because a minimum wage might force some companies to close shop, resulting in fewer jobs, and 3) it is usually a political solution to a very economic problem.


Hence there is the Workfare to ‘supplement’ income – but I think it is too little. However, the Special Employment Credit is a hint of what is to come. The scheme pays half of employers’ CPF contribution to older workers (actually ah, older workers have lower employer CPF contributions, so it doesn’t cost THAT much to the govt), if the employers continue to hire these workers. Effectively a job subsidy i.e. govt pays companies to continue hiring older and presumably low-income/low-skilled workers. Some improvements might even be the govt paying up to 90 percent of employer CPF contribution, or paying 20 percent of wages a la Jobs Credit 2009.


This is where I think the Special Employment Credit should be made permanent into the Permanent Employment Credit. The trinity workers will continue to have employment, and with Workfare payments (should be higher in my opinion), I think they will have better lives in one of the costliest cities in the world.


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Budget II

The Budget was announced yesterday, and I think the Committee of Supply debates will begin next week, when our MPs will rise to question the respective Ministries on their spending allocation, programmes etc. This Budget is not a huge surprise – as I noted previously, the govt has always dispensed cash handouts prior to elections. Furthermore, with S’pore enjoying an economic boom last year, people expect the govt to throw money everywhere.


There are a couple of ‘Likes’ and ‘Dislikes’ I’ve in mind:


1) Increase in Foreign Worker Levy for Construction and Service industries – Like


Yes, the Bangla workers at the construction sites will be more expensive to hire. But this will provide a strong incentive for firms to increase productivity through automation and technology. Of course, some firms will try to pass the additional costs to consumers (see today’s The Straits Times, got one guy said so). We shall see how it goes.


Perhaps more importantly, the govt is sending a strong signal that the proportion of foreign workers in the workforce will stay within the one-third limit.


2) Special Employment Credit – Like


The govt is effectively subsidizing employers’ CPF contributions to older workers. Actually ah, for these older workers, employer CPF contribution is already not a lot. But I think it will at least minimize the cost for firms to keep their older and low-skilled workers.


This is a one-off scheme, but I see potential in its expansion. Remember that Workfare was also one-off, but it became a permanent scheme. This Special Employment Credit, together with Workfare, can significantly help older, low-skilled and low-income workers to keep their jobs.


3) Reduction of Personal Income Tax – Like…and Dislike


Good what, more money in the pockets of individuals. So they can spend…and revenue will be collected from GST lol.


Personally I’d like to see the tax rates for the highest income bracket to be raised. Not that I don’t like rich people, but with so many millionaires in S’pore, taxing them a little more won’t hurt, huh?


That’s all for now. When the CoS debates start next week, I shall comment more.

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Budget Day is tomorrow, 18th Feb (auspicious number huh). I think The Straits Times has been unnecessarily hyping up the expectations of the Budget, with its daily speculations on what the Budget would offer, and what people desire. Furthermore, tomorrow’s Budget would be an ‘election budget’. People are anticipating freebies e.g. cash handouts. Every incumbent govt in the world does this, by distributing freebies to the electorate before an impending election. But the impact on electoral results has been mixed – look at 2006, despite the PAP government giving out the ‘Progress Package’, there was no net gain or loss from both the PAP and opposition sides. Hence, while I think the PAP govt would continue to be the God of Fortune, their gifts have limited impact.

What is exactly a Budget? How is it created? I mean, what does it serve? To answer this question, let’s go back to the basics of what a govt should do. In my point of view, like quite simple:

1) Ensure food, water, sanitation

2) Provide access to shelter

3) Provide physical security e.g. police and army

4) Gives education opportunities

5) Creates employment opportunities

6) Affordable healthcare

Of course there are other functions, but these are the BASICS. Some psychologist (Maslow right?) claims a person has several levels of needs. At the most essential level is food and water, duh. Next is security and safety, which can be provided by having a home and the presence of a strong police and army. Following that, people want to have sex and start families, so they have to be healthy and educated to find employment to provide for their children, and the govt should of course help to create employment opportunities, whether by pump-priming or pushing the private sector.

Simple what. Very difficult meh.

Translating into what I think ought to be the Budget’s priorities:

1) Food: inflation has caused food prices to increase. Veggies and meat are getting expensive. My personal ‘cai fan’ index has increased, so, yeah, to keep food affordable, inflation has to be tackled. How? That is the hottest question.

2) Shelter: HDB resale price index has been rocketing since 2006. If it continues, Singapore will truly be a First World country, but not on Earth. In Mars or Neptune or Jupiter maybe. The govt has to bring the index down AND provide affordable new homes for people.

3) Physical security: I think Singapore quite safe. Malaysia won’t invade us with our strong military deterrence. At least we’re doing a good job on this count.

4) Education opportunities: Good work so far, but I’m unhappy school fees have been raised. No wonder SDP called for school fees to be frozen for 5 years… The govt should be more sensitive about pricing and cost issues, especially with regards to pre-school education, as many couples KPKB they can’t make babies because of the high costs of pre-school.

5) Employment: The govt has been facing flak on immigration and ‘foreign talent’ problems, because they are perceived to be competing for jobs. Actually ah, the problem might not be so huge. What I suspect is more problematic, is ‘structural unemployment’. One fine day many factories will shift to China and Vietnam, so alot of folks who are old and uneducated will be unemployed. Yeah la, go for retraining, but also limited impact. The govt has to do something for this huge group of S’poreans who like stuck in these low wage jobs with little future, while their counterparts at the other end keep getting richer. It doesn’t matter if someone works as a cleaner, but if that cleaner sees his pay decreasing or he is unable to afford the most basic stuff in life, then it is a tragedy. With income inequality growing in S’pore, it won’t be long before we have an underclass. And the govt must solve it, of course, by narrowing the gap.

6) Healthcare: Being healthy and strong can make alot babies, lol. Healthcare costs have been rising. Face it lah, it will never go down unless we become immortals. And S’pore has an ageing population. What the govt should do is contain the costs as long as possible, while ensuring no one lacks access to healthcare. Sounds easy, but it’s a damn tough job.

If the govt can’t get the basics right…then I also nothing to say. Back to work for me.

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